What The Heck Is Observation Status, Anyway and Who Cares?

Those of you out there already on Medicare are probably already familiar with the infamous observation status. But those of you still in the workforce may not be familiar with the term yet. But believe me, if there’s a chance you might have to take charge of a parent’s healthcare someday, this is something you are going to want to pay attention to. I borrowed pretty heavily for this article from the Center for Medicare Advocacy’s website. This is a great non-prot, non-partisan organization and if you want more information about all things Medicare, check out their website.

Observation status is a simple concept—it just has really complicated ramifications. Observation status is when you are in the hospital and the hospital does not classify you as an inpatient. (Hospitals do have a pretty good reason for doing this from their perspective, it is just beyond the topic of this article, but please know they are not doing this because they’re out to get you.) You could still be sleeping in a hospital bed for multiple nights, eating hospital food (oh the horror!), having lots of tests, seeing the doctors—in short, you could have no idea you are on observation status. So why should you care? You’re getting all the same care. The problem can come when you get the bill but mostly comes when you need some rehab follow up and then get that bill. Observation status is all about who pays.

When you are an inpatient, your Medicare Part A pays. Observation status means you are technically an outpatient which means Medicare Part B pays. Now for some of you, Part A and Part B have different deductibles and different co-pays (not to mention Part B is optional and some of you don’t have it) so your status is going to make an impact on your wallet. But the biggest impact is usually when you need inpatient rehab in a skilled facility.

People often need rehab after a hospital stay and some sort of big medical event. Now here is where observation status matters a lot. This type of rehab can only be covered by Medicare Part A. And Part A will only cover this rehab if it follows a 3 day hospital inpatient stay. If you were in the hospital for 3 days but you were on observation status, you are paying out of pocket for all your rehab. And that bill is usually somewhere in the neighborhood of $300/day. And remember, you get all the same stu with observation status, so you might not ever have known you were even on observation status. Now you begin to understand the problem. So what can you do?

Step One: Find Out Your Admission Status

When you are hospitalized, nd out whether you have been admitted as an inpatient or on observation status. Ask your treating physician. If your physician is unclear regarding your status, ask to speak to someone in the case management department.

Step Two: Try to Get Your Status Changed

If you nd out that you are on observation status try to get the status changed while you are at the hospital. This could be dicult to do. The best chance of success is having your regular doctor talk to your treating physician at the hospital. Your regular doctor might be able to convince the hospital doctor that your status at the hospital should be changed from observation to inpatient.

Step Three: Prepare For Discharge

In the event that you are not successful, but need follow up medical care, you have to make a decision. If you can safely return home, ask your hospital or regular doctor to order home health care. If you are mostly homebound and you require skilled care, Medicare should pay for this care. Have the hospital set this care set up for you before you leave as part of your safe discharge plan. Understand that Medicare Will Not Pay for

Nursing Home Care After a Hospitalization on Observation Status

If you cannot safely return home, and the discharge physician has ordered care for you in a skilled nursing facility, check to see if the nursing home participates in the Medicare program. Unfortunately, since you were not admitted to the hospital as an inpatient, Medicare will not pay for this necessary care without a significant effort.

You might be able to appeal denial of coverage for your nursing home care so long as you spent three midnights in the hospital (not in the emergency room). Unfortunately, this appeal process can take a year or longer to resolve and winning the case is dicult. Also, ling an appeal does not prevent the nursing home from requiring you to pay for your care pending the outcome of the appeal. Remember, just because you appeal, doesn’t mean you will win. So if you go into skilled rehab or skilled nursing, you better count on being responsible to private pay just to be on the safe side.


Trying to fix placement in the hospital on observation status is very difficult and generally takes a long time. Knowing and understanding this concept from the outset could save you a lot of time, money, and headaches later. So make sure you stay on top of your care. Remember, if you are classified as observation status and aren’t making headway on getting your status changed, we are here to help.